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Nearly a quarter of Australians expected a fourth rate cut in 2019

26 February 2020 Lyall Russell
Interest rates

The Reserve Bank cut interest rates three times last year to a record low, but 23 per cent of Australians expected the rate to be reduced a fourth time before Christmas, new research shows.

The interest rate sits at 0.75 of a percentage point, and the Reserve Bank will make a decision next week whether to cut the rate further.

However, a large number of Australians expected a further rate cut last year, and 17 per cent made financial decisions to benefit from a reduction.

A money.com.au survey found a large number of younger Aussies expected the additional rate cut: 36 per cent of under-30s expected a cut, and 30 per cent of under-40s did, too, while only 15 per cent of over-60s thought there would be another reduction.

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Of the 17 per cent who made financial decisions based on the expectation of a fourth cut, the survey found 31 per cent took out or switched to a variable loan.

Eleven per cent of people increased the borrowing on their home, 10 per cent increased their personal spending and 8 per cent planned for more significant purchases in 2020.

“The survey results suggest that a proportion of mortgagors will usually borrow the maximum amount they can, with not much give,” money.com.au licensed financial adviser Helen Baker said.

“For borrowers who expected the fourth rate cut last year, we can see that many chose to increase their borrowing rather than pay down more of the principal and pay debt off faster. This indicates that they are not concerned about their debt level.

“It would indicate that they believe their employment income will continue, and they are comfortable with their ability to service loans at a higher level. They are unlikely to have concerns that reduced interest rates is a form of stimulus to deal with bigger economic problems at play, such as low wage growth and a poorly performing retail sector.”

Nearly a quarter of Australians expected a fourth rate cut in 2019
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